Related Search

UK investors save 11.3% of salary for retirement - is it enough?

UK investors are saving 11.3% of their income for retirement, more than other Europeans, according to a major new study.

04/12/2017

David Brett

Investment Writer

UK investors currently save an average of 11.3% of their income specifically for retirement, according to a major new study.

The Schroders Global Investor Study (GIS) 2017 found that non-retired UK investors are saving a higher proportion of their income for retirement than the European average (9.9%), and roughly the same as the global average (11.4%).

The study, which surveyed 22,100 people who invest across 30 countries, also found that many UK investors (73%) feel that their retirement income will be, or is, sufficient.

To afford to live comfortably in retirement the average investor thought they will need to save 12.4% of their income - more than their stated current actual saving rate.

Nearly half (42%) of retired UK investors surveyed said they wished they had saved more for their retirement.

Lesley-Ann Morgan, Head of Retirement at Schroders, said: “It’s well known that people aren’t saving enough for retirement but this study shows that even those who are already established investors are not putting away enough money.

“There’s also a strong message from some of those who have already saved: ‘I wish I had saved more’.

“The pension savings gap is further compounded by the fact we’re in an age of low rates and low returns. To reach their goals, people will need to save even more than savers did in previous generations.

“The study shows non-retired UK investors are only putting away 11.3% of their income but say they want to retire at age 60. Our analysis shows that someone who started saving for retirement at age 30 is likely to need savings of 15% of their income, and or above a year if they wanted to retire on a minimum of 50% of their salary.”

Are UK investors saving enough?

The level of retirement income that savers can expect depends on:

The amount contributed (and when).

The returns achieved.

How the money is invested after retirement.

The length of time over which money will be withdrawn.

The chart below sets out analysis undertaken by Schroders. It assumes a starting age of 30 with a £35,000 salary that rises in line with inflation. It shows the real annual returns – where inflation is taken account - that would be needed to achieve two levels of income: 50% or 66% of your salary when you retire. These are typical bands that people aim for. It also assumes they will draw on the money for 18 years, on average.

How much savers need to save, depending on returns achieved

Source: Schroders Retirement. For illustrations only. Starting age 30 years, retiring at 65. Starting salary of £35,000 assumed to grow at the rate of inflation. Replacement rate based on current annuity rates generating an income of 66% and 50% of final salary respectively.

So if a saver contributed 15% of their income, they would require an average annual real return of 4.3% (the middle column) to achieve a retirement income worth 66% of their income. If they contributed 10% of income, however, they would need a return of 6.2%, a level higher than the long-run return on equity markets.

Past performance offers no guarantee of future returns but today’s low-rate world could mean investments pay less than they have done in recent decades.

However, the Schroders Global Investor Study also found investors remained optimistic on the outlook for returns. In the UK, investors anticipated their investments would return 8.7% a year on average, over the next five years.

The Schroders Economics Group has forecast a 5.4% annual return for UK equities over the next seven years, or 2.4% a year after inflation is taken into account.

How will retirement be funded?

UK investors would like to retire, on average, at 59.7 years old, according to the Schroders Global Investor Study. Once retired, the state pension will/has help fund their retirement but to a much lesser extent than other countries.

On average, less than a fifth (16%) of their retirement income will/has come from the state pension, compared with over a quarter (26%) in Europe and just under a fifth (19%) globally.

In the UK, a high proportion of retirement income is expected to come from company pensions (30%) and other savings (17%).

The Schroders Global Investor Study, which surveyed people planning to invest at least €10,000 (or the local currency equivalent) in the next 12 months and who have made changes to their investments within the last 10 years, covers a whole range of investor attitudes and expectations which can be found at schroders.com/gis.

It sits alongside Schroders InvestIQ, a new test that aims to improve the abilities of investors.

What is the investIQ test?

Do you make decisions based on logic and reason? The truth is our mind plays tricks on us more often than we realise. It makes us believe we’re thinking analytically, when we may be acting instinctively. So what feels like an informed decision, is actually clouded by behavioural biases.

The same thing happens when we’re making important choices – like how to invest our money.

At the heart of investIQ is a short test developed by behavioural scientists that helps you understand your investment personality. In less than 8 minutes, you’ll get a detailed report outlining which behavioural traits influence you the most, and how best to deal with them.

Schroders commissioned Research Plus Ltd to conduct, between 1 and 30 June 2017, an independent online study of 22,100 investors in 30 countries around the world, including Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, UAE, the UK and the US. This research defines “investors” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.

Topics:

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.